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GDAX will restore the balance of margin called users with company funds

blog.gdax.com

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Re: GDAX will restore the balance of margin called users with company funds

#41

Post by joosters »

mrleiter wrote: post #31

This is really a curious instance. Those people whose savings have been wiped out have been hit so hard because they had stop orders, not limit orders. The main difference is that once the stop point has been reached, a stop order becomes a market order and then is filled at market rate. So yes, a stop order at, e.g., 300$ turns into a market order for 300$ and it may be that you are filled at 1$ if there is huge mar…

Are you claiming that exchanges in cryptocurrency have a good reputation? They get 'hacked' on a regular basis and lose customer money so frequently that it's barely new any more. What on earth do they have to do to get a bad reputation in your eyes?

Re: GDAX will restore the balance of margin called users with company funds

#42

Post by JadeNB »

jzwinck wrote: post #30
modeless wrote: post #3

This is interesting because it gives them a huge incentive to prevent this from happening again, if it costs them millions of dollars each time. I wonder what changes they will institute?

Presumably a circuit breaker. Many exchanges have these now. The Japanese stock exchange has a particularly nice one which pauses every 3% for people to think about what they are doing. That makes stop loss orders behave more in line with people's expectations.

> The Japanese stock exchange has a particularly nice one which pauses every 3% for people to think about what they are doing.

Sorry, as a non-finance-savvy person: 3% of what? (I guess also: what is a 'circuit breaker' in this context?)

Re: GDAX will restore the balance of margin called users with company funds

#43

Post by jnwatson »

danmaz74 wrote: post #36
ryen wrote: post #27

Seems like a good mea culpa, but time will tell how they really feel about making good on these promises.

Mea culpa for what? For greedy traders* not understanding the risks of margin trading? ( *) I'm playing with small money on poloniex as a greedy trader. I made +400% in 3 months, but I don't expect to be refunded if I lose everything for a mistake I made. I would only hope for a refund in case of a bug-related issue.

Losing your entire account is not a normal risk of margin trading. They were way too quick on the margin calls.

Re: GDAX will restore the balance of margin called users with company funds

#44

Post by vii »

modeless wrote: post #26
vii wrote: post #21

It seems that the price plummet only occurred on the GDAX ETH-USD market. Even the GDAX BTC-ETH market hasn't the spike. Normally there are many bots ferrying liquidity between these markets so this suggests that the ETH-USD market was not giving willing traders a chance to place orders. Their first blog post indicated it was working perfectly, in which case a design rethink is in order. Coinbase regularly goes down…

This was not a technical issue. Everything worked exactly as designed. A large market sell order reduced the price to a level that triggered other sell orders (a combination of "stop-loss" and forced liquidation for margin positions) in a cascade. This was a flash crash that was over within a few seconds, so other markets did not react. The issue is that there are a lot of inexperienced traders on GDAX right now and…

During the crash, if the market were functioning normally, people could have bought cheap ETH in the ETH-USD market and sold it at nearly the normal price via the ETH-USD and BTC-USD markets all without leaving GDAX. Their outage page has the grace to mention that there were slowdowns.

A few seconds is normally long enough for liquidity to transfer between markets and this time it wasn't. That's the issue

Re: GDAX will restore the balance of margin called users with company funds

#45

Post by BenchRouter »

JadeNB wrote: post #42
jzwinck wrote: post #30

Earlier quoted context omitted.

Presumably a circuit breaker. Many exchanges have these now. The Japanese stock exchange has a particularly nice one which pauses every 3% for people to think about what they are doing. That makes stop loss orders behave more in line with people's expectations.

> The Japanese stock exchange has a particularly nice one which pauses every 3% for people to think about what they are doing. Sorry, as a non-finance-savvy person: 3% of what? (I guess also: what is a 'circuit breaker' in this context?)

If the index (presumably the Nikkei, similar to the S&P 500) drops 3% in a single day, the stock exchange will stop all trading for a period of time.

This gives people the chance to cool off and not sell blindly in a panic, hopefully returning behavior to normal.

It also gives people the chance to intercept automated systems (stop-loss orders, things like that) if it's clear that e.g. it's a "flash crash" and not a more legitimate (for lack of a better term) drop.

It's a circuit breaker in the same way that a regular one works: It stops all activity (all trading) in order to protect the system (the economy) in the event that too much current is flowing through (too many sell orders, or too much volatility in the market).

Re: GDAX will restore the balance of margin called users with company funds

#46

Post by tootie »

nodesocket wrote: post #13

Wait I'm confused... The market moved dramatically and quickly, which can happen dealing with something as speculative as cryptocurrency, and yet they are refunding people? Did I miss something? Isn't this part of the risk investing?

They are derisking speculation by offering a bailout to the losers. This will increase risk tolerance and lead to wilder speculation. Until the next crash when no one is bailed out and investors cry foul.

Re: GDAX will restore the balance of margin called users with company funds

#47

Post by peloton »

kev009 wrote: post #20
nodesocket wrote: post #13

Wait I'm confused... The market moved dramatically and quickly, which can happen dealing with something as speculative as cryptocurrency, and yet they are refunding people? Did I miss something? Isn't this part of the risk investing?

It takes a few hundred ETH to have worthwhile leverage.. so they probably risked losing a substantial amount of trade volume and liquidity with the fiasco aside from loyal customers and early adopters. It wasn't just the natural market forces. They directly manipulated the market by stopping trading, and indirectly during and after the event with a variety of system issues that are not comforting. IMO this move to re…

There wasn't market manipulation here on GDAX's part. The people they are compensating are those who got wiped because they were trading on margin (if anyone is not familiar, this adds much more risk). These people already had their portfolios auto-liquidated via the margin call so stopping trading afterwards had no impact. Same with stop loss orders, although there's a different mechanism at play there.

From GDAX's point of view the tradeoff boiled down to whether to invest in PR / brand today or risk a moral hazard problem in the future (users expecting bailouts so they take more risk).

Re: GDAX will restore the balance of margin called users with company funds

#48

Post by Blackthorn »

mrleiter wrote: post #31

This is really a curious instance. Those people whose savings have been wiped out have been hit so hard because they had stop orders, not limit orders. The main difference is that once the stop point has been reached, a stop order becomes a market order and then is filled at market rate. So yes, a stop order at, e.g., 300$ turns into a market order for 300$ and it may be that you are filled at 1$ if there is huge mar…

There are also people who were hit because they got margin called. The process here seems a bit ridiculous and the compensation completely understandable. If Interactive Brokers gives me a margin call, I have a couple days to cough up the funds. They don't immediately liquidate my account.

Re: GDAX will restore the balance of margin called users with company funds

#49

Post by runeks »

TrainedMonkey wrote: post #6
modeless wrote: post #3

This is interesting because it gives them a huge incentive to prevent this from happening again, if it costs them millions of dollars each time. I wonder what changes they will institute?

Couple things they could do: 1. Rejecting the orders that will wipe out the order book. 2. Doing something hedge-fundy. Becoming counterparty or running the darkpool that let's other people jump on that. 3. Do nothing - there is now an incredible amount of limit orders from people kicking themselves for not doing something like that earlier (I've got a few:P).

> 1. Rejecting the orders that will wipe out the order book.

So, allow speculators to place as many bets as they want and prevent people who want out from getting out? Let everyone in, and when they become over-leveraged, prevent them from escaping? Rejecting sell orders (which can cause these things, if they're large enough) is not an exchange, but some form of casino.

Re: GDAX will restore the balance of margin called users with company funds

#50

Post by TaylorGood »

shizzlest wrote: post #33
kev009 wrote: post #10

I had around $151k at the day's value wiped out as one data point (my fiat cost basis on entry was lower, not my life savings but not a trivial amount for me). Had a very busy week and didn't grok it was gone until Thursday afternoon. It actually felt cathartic to feel the feeling of losing $150k in the sense I was thinking "ok if I can accept dealing with that failure I can deal with any business fiasco when I start…

"not my life savings but not a trivial amount for me" sounds like you really should consider lowering your stake in this crypto gambling

I know a crypto trader who lost $95k during that GDAX fiasco and I was in a group chat with him while it happened. It WAS his life savings in that he was going to buy a house with it. Started talking about having to find a job.

I've been in crypto for 18 months and at the start put a sizable piece of my networth in WAVES ICO. I missed the ETH ICO even after CTO friend said to get in that ICO but WAVES is up like 2500%+

Now cryptocurrency overall is less than 10% of my networth and I've avoided most ICOs since.

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